Chinese return boosts dairy

The latest Dairy Australia Situation & Outlook report showed positive news in the global market, although seasonal conditions could hurt local dairyfarmers.

DA senior analyst John Droppert said there was still some uncertainty in the dairy sector, but a global boost looked likely to flow through to farmgate prices in the next few months.

“We’ve seen a little bit in the step-ups announced and we will probably see more into the new year as the recovery consolidates,” he said. 

“There is still quite a bit of risk so processors will likely wait (until more confident) to announce the step-up.”

Mr Droppert said the slowdown in global supply, particularly from major competitors New Zealand and Europe, was mostly driven by the sharp drop in the market. 

This followed on from a big lift in European production after the removal of milk quotas at the end of March 2015 and a season with an extra $4 billion litres of milk on the market.

Demand has also increased, as China re-entered the marketplace, with a 20pc lift in dairy exports.

Mr Droppert said the Chinese market had been significant in the 2013-14 season, but had been absent in recent months.

He said the return was “very significant” with China also buying across a broader product range, rather than just powdered milk from NZ, which would mean less exposure to risk.

Australian milk supply is also expected to decrease by 5pc across the full season, from a combination of people leaving the industry, animal culls and the impact of the wet season.

Dairy areas in northern Vic, NSW, Tas and SA have been hit by excessive rain, and flooding in some cases, which will have an impact on supply.

Mr Droppert said the farmgate price drop earlier this year resulted in many farmers going through their herds and culling “ruthlessly” to take advantage of the good beef prices.